Final Results

Vislink plc

Results for the year ended 31 December 2011

Vislink plc ("The Group"), the global technology business specialising in solutions for the collection and delivery of high quality video and associated data for the broadcast and surveillance markets, has today announced its results for the year ended 31 December 2011.

Financial Headlines

*Adjusted operating loss is operating loss before the amortisation and impairment of goodwill and acquired intangibles, and other non-recurring costs. Adjusted earnings per share is calculated on the same basis after taking account of related tax effects.

·; Underlying orders received in the year** grew 12% to £47.0m (2010: £42.1m)

·; Underlying revenue** was up 4% at £44.7m (2010: £43.1m)

·; Total underlying operating costs** reduced by 22% to £22.7m (2010: £29.0m)

·; Adjusted* operating loss for the continuing operations reduced to £0.2m (2010: loss of £8.4m)

·; Adjusted* operating profit of £1.7m for the second half compared to £1.9m loss in first half

·; Non-recurring charges relating to corporate restructuring of £2.2m

·; Tender offer returned £5.0m of cash to shareholders in April

·; Acquisition of Gigawave completed in June for a total consideration of £3.75m

·; Order book at 31 December 2011 of £12.4m (2010: £6.6m)

·; Net cash at 31 December 2011 of £10.1m (31 December 2010: £22.2m)

·; Dividend maintained at 1.25 pence.

** Underlying orders received, revenue and operating costs are reported orders received, revenue and operating costs from continuing operations excluding the contribution from Gigawave Limited.

Operational Highlights:

·; John Hawkins appointed as Executive Chairman from May 2011

·; Returned to profitable growth in the second half of 2011

·; Management structure simplified

·; Integration of Gigawave on track with synergies being exploited

·; A clear strategic direction has been set for the Group

John Hawkins, Executive Chairman of Vislink said:

"2011 was a year of transition for the Group. We achieved the objective of returning the business to profit in the second half of the year; we have growth in underlying revenue and orders received and we have increased our order book. We have improved our margins, substantially reduced the underlying cost base and simplified the management structure.

We have a good strategy based primarily on organic growth coupled with seeking out acquisitions in cellular and IP-driven technology. The successful execution of the strategy will provide long term growth and generate an increase in shareholder value. "

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For further information on 27 March 2012, please contact:

About Vislink plc

The Vislink Group is a global technology business specialising in the collection and delivery of high quality video and associated data from the field to the point of usage. Vislink provides solutions to the broadcast market for the collection of live news, sport and entertainment events and to the surveillance market including law enforcement and public safety customers. With offices in the UK, USA, Australia, China, UAE and Singapore we employ over 250 people worldwide and have revenues in excess of £50 million. Our solutions include the design and manufacture of microwave radio, satellite transmission and wireless camera systems; our manufacturing operations are in the UK and the USA.

The Company is fully listed on the London Stock Exchange (LSE:VLK). For further information, visit www.vislink.com.

Directors' responsibility statement

The financial information for the year ended 31 December 2011 contained in this announcement was approved by the Board on 27 March 2012. This announcement does not constitute the statutory accounts of the Company within the meaning of section 435 of the Companies Act 2006, but is derived from those accounts.

Statutory accounts for the year ended 31 December 2010 have been delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2011 will be delivered to the Registrar of Companies in due course. The auditors have reported on these accounts. Their reports were not qualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Forward looking statements

Certain statements in this announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast.

Executive Chairman's Statement

For the year ended 31 December 2011

Introduction

The core competence of Vislink is in the collection and delivery of high quality video and associated data from the field to point of usage. We provide solutions to two core markets: the broadcast market for the collection of live news, sport and entertainment events and the video surveillance market including law enforcement and public safety customers.

2011 was a year of transition for the Group. We achieved the objective of returning the business to profit in the second half of the year; we have growth in underlying revenue and orders received and we have increased our order book. We have improved our margins, substantially reduced the underlying cost base and simplified the management structure.

In April we returned £5.0 million of cash to shareholders through a Tender Offer. In June the Group acquired Gigawave Limited ("Gigawave"), a leading designer, manufacturer and supplier of wireless camera, microwave and antenna products for the broadcast market.

In May we simplified our management structure so that the Group's internal organisation is now based on the geographical location of its entities; the business comprises two regions, the UK, and the United States of America (US). We have regional sales offices in Australia, China, Dubai and Singapore that all report into the UK management. In October we strengthened the Board with the addition of two experienced industry specialists as non-executive directors, one with a background from the broadcast market, the other in surveillance.

In November we announced our strategy for the business for the next three years. We have set ourselves the target of profitable growth to annualised revenues of £80 million with an adjusted operating profit margin of 10 per cent.

We can see strategic value in our capability to provide full integration services to both our broadcast and surveillance customers which will provide opportunities for recurring revenues. Therefore, as previously announced, we have decided not to sell the US services business of Western Technical Services ("WTS") which has now been integrated into our US business based in Billerica, Massachusetts. We have restated the Group's prior year results to reflect WTS as part of the continuing business.

Financial Results

Group revenue was £50.3 million (2010: £43.1 million). Underlying revenue, being total revenue less revenue from Gigawave, was up 4 per cent at £44.7 million. Orders received were £52.8 million (2010: £42.1 million); underlying orders received were 12 per cent up on 2010 at £47.0 million. As at 31 December 2011 the order book stood at £12.4 million (2010: £6.6 million). The growth in orders has come from increased demand for our broadcast products in the Middle East and South America as well as a recovery in Western Europe. The surveillance market remained challenging as it is directly related to public sector expenditure.

The Group's material margin, defined as total revenue less direct material costs of sale, has improved by 3.8 points to 51.7 per cent (2010: 47.9 per cent) as the Group has benefitted from improved procurement processes. Total underlying operating costs, which comprise direct manufacturing labour and all other operating overhead costs were reduced by 22 per cent to £22.7 million (2010: £29.0 million) as a direct result of our cost reduction programme initiated in January 2011.

With improved material margins and lower total operating costs, we have seen the adjusted operating loss for the year fall to £0.2 million (2010: loss of £8.4 million). The Group made an adjusted operating profit of £1.7 million in the second half of the year on revenues of £30.3 million having reported a first half adjusted operating loss of £1.9 million.

The reported operating loss was £3.6 million (2010: loss of £21.2 million) after charging £1.2 million in respect of the amortisation of acquired intangibles (2010: £2.0 million) and £2.2 million in respect of non-recurring costs (2010: £10.8 million). Non-recurring costs include £0.8 million in respect of the acquisition costs associated with Gigawave and its integration into the UK business and £1.4 million of other rationalisation and redundancy costs.

The loss before tax was £3.6 million (2010: loss of £21.7 million) after net finance costs of £nil (2010: £0.5 million).

The Group has maintained a strong balance sheet throughout the year and remains debt free. Net cash was £10.1 million at 31 December 2011 (2010: £22.2 million). Following the disposal of Hernis Scan Systems AS ("Hernis") in December 2010 the Group returned £5.0 million of cash to shareholders through a Tender Offer in April 2011 (cash cost of £5.2 million after costs of £0.2 million) and a further £1.4 million was returned by way of a dividend in July. The cash outflow associated with the acquisition of Gigawave, including the elimination of their external borrowings, was £3.2 million and deferred consideration of £0.9 million was paid in respect of previous acquisitions.

Earnings Per Share

The reported basic undiluted loss per share for the year was 2.4 pence (2010: earnings of 2.9 pence). The loss per share from continuing operations was 2.6 pence (2010:14.1 pence). After adjusting for non-recurring costs and the amortisation and impairment of goodwill and acquired intangibles, the Group's adjusted loss per share was 0.2 pence (2010: loss of 5.6 pence).

Dividends

The Board is proposing that the full-year dividend be maintained at 1.25 pence per share (2010: 1.25 pence).

Acquisitions

On 2 June 2011 we acquired the entire issued share capital of Gigawave Limited ("Gigawave") for cash consideration of £3.75 million. Based in Colchester, Essex, Gigawave is a leading designer, manufacturer and supplier of wireless camera, microwave and antenna products for the broadcast market and employed 87 people. Gigawave has a particular strength in "on-board" applications for motorsport events around the world.

Gigawave will complement and broaden the Group's capabilities in terms of engineering, product portfolio and geographic reach and will strengthen the Group's position in the broadcast market as well as providing incremental revenues into the surveillance market.

Gigawave has been integrated into the Group's UK operations so as to realise the benefits expected from improved global distribution of all the Vislink brands and operational efficiencies. The integration will give annualised overhead cost savings of circa £1.4 million. The costs associated with the integration process were £0.6 million.

Strategy

Our strategy for the Group was announced in November. We will continue to develop our core competence to provide solutions for the broadcast and surveillance markets. We will exploit the strengths of our established brands - Advent, Gigawave, Link, MRC and PMR. We will also maintain investment levels through our core product development programme, particularly in IT based technologies such as IP transport over 3G/4G and WiFi infrastructures.

We believe that the Group is capable of exploiting the continuing growth of video content contribution both in our traditional broadcast market and also in other vertical markets.

Vislink currently has the widest product portfolio in the broadcast contribution sector and is the number one supplier in what is today a fragmented market. Our market share is currently circa 20 per cent of the addressable global market which is estimated to be circa £230 million and projected to grow to circa £270 million by 2015. The transition to HD for live broadcasting in mature markets and the switch to digital in less mature markets will continue to drive demand. The Group will look to exploit the opportunities that arise in 2012 from broadcasters investing for events such as the London Olympics and the US presidential elections.

We will continue to maintain our market-leading position with the provision of wireless video delivery and miniaturisation as demonstrated through our on-board applications in motorsport, the Americas Cup and Moto GP. Our products maintain leading edge capabilities, tracking the trends in use of 3G/4G and IP gateway delivery technologies. We wish to extend the use of our technologies, principally through partnerships, into the semi-professional market.

We plan to leverage our technologies into the surveillance markets beyond our existing law enforcement and public safety customers, where we are already a leader in airborne video surveillance applications used in helicopters, the associated command and control support vehicles and hand held devices. For example there is a growing demand for unmanned aircraft and other vehicles where our expertise in providing wireless video contribution is transferable. We will access these opportunities through partnerships. Furthermore we have identified applications for our products in defence, mining and utility verticals that provide incremental revenue opportunities beyond our core broadcast and surveillance business.

We will create a software and services culture within the Group allowing us to build recurring revenues into our business model; our intention is to build more of a solutions, services and software offering to our customers. This will take time to build but will ultimately provide the recurring revenues and visibility that our current business model does not provide us with. We will also seek "bolt on" acquisitions to strengthen our software and services capabilities exploiting the growth of cloud based IP transport technologies and content tagging.

The financial goal is for profitable growth to £80 million of annualised revenues within 3 years with an adjusted operating profit margin of 10 per cent. We expect growth from a combination of organic growth at 10 -15 per cent per annum and "bolt on" acquisitions in services and IP/software technologies. We expect to be cash generative.

The Board, management and employees

We have strengthened the Board with the appointment of two experienced industry specialists as non-executive directors on 1 October 2011; John Varney and Andrew Sleigh bring an in depth knowledge of the broadcast and surveillance markets respectively. The Board agreed to appoint me as Executive Chairman combining the roles of Chairman and CEO, allowing delivery of the three-year plan.

As previously announced, James Trumper will leave the Group at the end of April to seek a fresh challenge after twelve years of loyal service. On behalf of the Board and the whole Group I would like to thank James for his significant contribution and for his continued support throughout this important period of transition. We expect to announce James' replacement shortly.

On behalf of the Board I would like to thank all our employees for their efforts in the course of 2011, during which they have had to manage the consequences of a continuing difficult economic environment whilst dealing with the necessary restructuring of our businesses.

Current trading and outlook

We have entered 2012 with an improved order book of £12.4 million (1 January 2011: £6.6 million). The integration of Gigawave has been completed during the first quarter of 2012. The cost savings from the integration of Gigawave combined with the full year effect of the Gigawave revenues will enhance our profitability in 2012. We are focussed on obtaining growth from the developing markets of Asia and Latin America whilst maintaining our market leading position in North America and Western Europe.

We have the right products and cost base to continue to improve the business in 2012 and we can look forward with renewed confidence.

We have a good strategy based primarily on organic growth coupled with seeking out acquisitions in cellular and IP-driven technology. The successful execution of the strategy will provide long term growth and generate an increase in shareholder value.

John Hawkins,

Executive Chairman

27 March 2012

OPERATING and FINANCIAL REVIEW

For the year ended 31 December 2011

The Organisation of the Group

Vislink is strategically focussed on providing secure communication solutions into the global broadcast and surveillance markets specialising in wireless, video and IP (Internet Protocol) technologies. Although our chosen markets have different customer characteristics, they share common technologies and related products, and Vislink will therefore continue to benefit from economies of scale in its investment in engineering and manufacturing by amortising the costs of its investment across the two markets. Vislink management is focussed on developing revenue growth from the two main markets that it serves; in each market we expect to be either the market-leader or a significant competitor of the market leader, and to have uniquely competitive products. We will continue to build market share and brand presence.

In 2011 the Group's internal organisational and management structure and its system of internal financial reporting was reorganised to be based on the geographical location of its businesses. These comprise two regions, the UK, and the United States of America (US). Each business location has its own managing director who sits on the Executive Management Board under the chairmanship of the Executive Chairman.

The UK business is responsible for the sales and marketing of all Group products and services outside of the Americas. It is also the product centre for the Advent satellite communication products, Link wireless camera systems and the Gigawave microwave products and "on-board" applications. We have regional sales offices in Australia, China, Dubai and Singapore that report into the UK management.

The US business is responsible for the sales and marketing of all Group products and services in North and South America and Canada. It is also the product centre for the MRC and PMR microwave product brands and the services business of WTS.

Our Markets

Broadcast

Our core competence

Our broadcast solutions are synonymous with innovation in live television markets. We are the worldwide leader in "high-end" solutions for digital wireless transmission over microwave and satellite for the capture of live television coverage in SD and HD for sports, events and news gathering. Our systems are used in situations where reliability and quality of service are paramount. We are specialists in providing solutions for challenging environments and "on-board" applications.

Our customers include most broadcasters in the world, comprising those specialising in news gathering, entertainment, sports, religious broadcasting and education. More than 50 per cent of all outside broadcast video contribution comes via Vislink products. We have four established brands:

• Advent Communications for fixed and mobile satellite uplink terminals for satellite news gathering (SNG)

• Gigawave for microwave products for electronic newsgathering (ENG) and specialist onboard wireless applications for motorsports and other high profile events

• Link Research for wireless camera systems

• Microwave Radio Communications, the market leader for ENG in the Americas.

Market size

Vislink operates in the "Media Contribution" side of the broadcast market; that is the acquisition of video content and its transfer from the field to the studio. Media contribution comprises of services ranging from those supplied by Vislink to outside broadcast equipment and telco circuits. Based on commissioned research, we estimate the market for Vislink products and services was approximately £230 million in 2011 giving us circa 20 per cent share of the global media contribution market. We believe the market has an underlying growth rate of 4 per cent over the next three years. However we believe that the emerging market growth rate over this period will be 12 per cent.

The broadcast market represented 84 per cent of our revenues in 2011.

Market Drivers

The mature markets (Western Europe, North America, Japan) have the largest investment in high-end products and are the market leaders in terms of technology where viewers demand high production values. They are quick to invest in new technology (digital, HD, spectrum changes) and innovations that reduce cost or add a more engaging experience for the viewer (for example wireless camera systems). These markets have already transitioned to digital technology. We see opportunity from the transition to HD for live broadcast that requires television studios and outside broadcast infrastructure and equipment to be upgraded to handle HD cameras and signals. We believe at present only 30 per cent of the market has transitioned to HD.

In a number of regions the digital switch over has yet to happen. Opportunities still exist to sell equipment to countries preparing for spectrum relocation (such as Australia) and those that have not yet switched to digital (principally in Africa and Central Asia).

Broadcasters and media companies are highly motivated to invest in major events and 2012 provides Vislink with opportunities such as the London Olympics, the Americas Cup and the US elections. This goes hand in hand with advertising which is the main source of revenue for commercial broadcasters and therefore advertising spend is tied to the level of investment.

The increasing global demand for video contribution which comes with the proliferation of broadcasters and content providers, particularly in the emerging markets, together with the increase in video-enabled broadband and mobile devices drives demand for contribution technology.

There is increasing use of WiFi, 3G/4G for delivery of contribution alongside a "high-end" solution. Low cost solutions give immediacy to a news event as it happens, with higher end solutions being utilised as the news event matures. There is increasing demand for lower cost solutions for growing markets such as citizen journalism, internet news and other niche broadcasters.

Our strategy

Our customers are large, tier 1 broadcasters and media companies. They have traditionally purchased high quality "mission critical" equipment. We have a "high-touch" sales and support model and market leading brands that address these customer's requirements. However we recognise that our customers increasingly are looking for high-end solutions coupled with lower-cost devices blended with satellite, microwave, 3G/4G and WiFi.

Our strategy is to maintain our strong market position in the mature markets (North America and Western Europe) and to increase our market share in emerging markets. We will do this by increasing our sales presence overseas and by improving our key account relationships with broadcast leaders. We will continue to improve service and support and develop revenue opportunities and move towards market focussed "solution selling". At the same time we will exploit our "on-board" project skills into wider applications for sport and event broadcasting.

We will continue to invest in our products and solutions. We are developing gateway products (edge devices) to take advantage of 3G/4G and WiFi wireless infrastructure. We are also developing lower cost solutions for growth markets such as citizen journalism, internet news and other niche broadcasting utilising existing platforms.

Surveillance

Our core competence

Our surveillance solutions provide secure, wireless, video and data communications systems, for worldwide law enforcement agencies, first responders and public safety personnel. We are specialists in airborne applications with down links to mobile command and control centres and we have an established base in the US law enforcement community. Vislink plays a critical role in supplying robust systems for military, public safety and satellite telecommunications worldwide. We provide complete solutions to support interagency sharing and cooperation of mission critical real-time video surveillance both on the ground and in the air.

We are experienced in applications for covert and urban surveillance, airborne downlinks, mobile command and control solutions, unmanned systems and mobile satellite systems. We are also providing industry specific communications systems that are carefully designed to meet the needs of the surface mining market.

Market size and drivers

The surveillance market represented 16 per cent of our revenues in 2011. We believe the addressable global market for our surveillance products is circa £200 million. The law enforcement market, which represents approximately 70 per cent of our surveillance revenues, is driven by the need for robust video surveillance, particularly airborne, for complex situations such as crowd control or during natural disasters. The need for interoperability between agencies, particularly in the US, is driving the demand for common platforms. In the military market there is increasing demand for video surveillance products to be used in unmanned ground or airborne vehicles to minimise the risk to human life when assessing potential threats. 

Our strategy

The combination of technologies and products which blend private licensed frequency bands with unlicensed wireless infrastructure leverages the strong position currently enjoyed by Vislink within its core market whilst attracting new customers. This approach expands mission capability for legacy customers and sets the stage for expansion into new and under-served markets. The requirement for improved video collection and dissemination utilising specialized network edge devices will drive market growth. As unlicensed infrastructure networks continue to increase in coverage and capacity, so does the market for our video surveillance products.

Both our broadcast and surveillance addressable markets will expand with new WiFi and 3/4G products and mesh network applications. Increasingly there will be a mix of fit-for-purpose solutions from high-end, high quality to commoditised products for the growing semi-professional market.

Our strategy for the surveillance market is to strengthen existing routes to market through channel development and partnerships. We will leverage our technologies beyond our existing law enforcement and public safety customers. In particular we are developing a new lightweight manpack satellite terminal for the military and civil defence market in partnership with identified key accounts. 

We will also further develop identified applications for our products in the mining market that has potential to prove incremental and recurring revenue opportunities.

Business Performance: Key Indicators

The table below sets out the key indicators that are used to measure the performance of the business. The 2011 indicators have been segmented to show both the Group totals and the underlying business, which excludes the trading of Gigawave, in order to demonstrate the improvements over 2010 in our underlying business.

Our key metrics of order intake, revenue and material margin have all improved over the previous year; at the same time we have reduced our cost base. Revenue would normally follow order intake with a lag of up to three months. Whilst the Group reported an adjusted operating loss in the first half of the year of £1.9 million we generated an adjusted operating profit of £1.7 million in the second half resulting in a net adjusted operating loss for the year of £0.2 million.

Notes

1 Following the Board's decision to retain the business of WTS, the results to 31 December 2010 have been restated to incorporate WTS as part of the continuing business.

2 Underlying business is defined as the Group total less the post acquisition trading of Gigawave.

3 Defined as revenue less material costs in cost of sales.

4Operating costs comprise sales and marketing expenses, administration expenses, and the overhead costs associated with logistics and research and development.

5Defined as operating loss before the amortisation and impairment of goodwill and acquired intangibles, and other non-recurring costs. Adjusted EPS is calculated on the same basis after taking account of related tax effects.

Business Performance: Revenue by market

Broadcast

We have seen a slow recovery in our broadcast market. Revenue was £42.3 million (2010: £36.6 million); underlying revenue increased 3 per cent to £37.8 million and Gigawave contributed revenue of £4.5 million from seven months trading post acquisition.

Whilst Western Europe and North America currently remain our largest markets we have seen a 14 per cent decline in underlying revenue in both as these markets remain challenging in the current economic climate. However we have seen growth in South America (up 63 per cent) and the Middle East/Africa region (up 61 per cent) that was being driven by current and upcoming political and sporting events.

Revenues in Asia were down 1 per cent. We have reorganised our sales operation in the region to be more suited to the growth opportunities that exist. For example we have opened a sales office in Australia to enable us to take advantage of the anticipated spectrum change in 2013 as well as to allow us direct access to our chosen partners in the surveillance market.

Surveillance

Underlying revenue in the year was up 6 per cent at £6.9 million (2010: £6.5 million) including £1.2 million of revenue into the mining segment. Gigawave brings the Group relationships in the surveillance market for airborne down links in the UK, Middle East and Australia and contributed £1.1 million in revenue post acquisition.

The challenge in our Surveillance market remains the timely conversion of opportunities into orders. Government funded projects are, generally, dependent on political decision-making cycles, particularly in the US market from where we still expect to derive significant growth. We have seen increasing activity and pipeline growth but we have yet to achieve critical mass to have a more predictable flow of business. A number of key contracts for aerial surveillance and covert video solutions have been captured which will result in steady business beyond 2011. These opportunities represent the realisation of our strategic shift away from selling video transmission components toward providing our customers with complete end-to-end engineered solutions which meet their specific surveillance requirements. Increased system sales present greater opportunity for sustainable ongoing technical maintenance services.

Business Performance: Regional Operations

The UK business has benefitted from the revenue growth in Middle East/Africa and Asia which has more than offset the decline in Western Europe revenues. In addition, inter segmental sales from the UK have benefitted from increased demand for satellite products in South America. As a result gross UK revenues are up 19 per cent. US revenues are down 8 percent as the North American broadcast market, which accounts for more than 50 per cent of revenues, fell by 14 per cent. Growth in South America and in the US surveillance market mitigated the decline in core US broadcast market revenues.

The underlying business has recovered from an £8.4 million adjusted operating loss in 2010 to an adjusted operating profit of £0.4 million in 2011 as a result of the strong management action taken during the year. Both the UK and US businesses have improved their operating performance by £4.2 million each whilst central costs have been reduced by £0.4 million. Material margins have improved by 3.8 points through improved procurement processes that have generated £1.7 million of incremental gross margin; increased revenues have added a further £0.8 million of gross margin. In addition underlying overheads have been reduced by £6.3 million (22 per cent), substantially through headcount reductions across the Group.

The performance of Gigawave for the seven months post acquisition has been disappointing. The business had an adjusted operating loss post acquisition of £0.6 million on revenues of £5.6 million. In the fourth quarter of 2011 we announced the integration of Gigawave into the UK business. As a result of this process we expect to reduce UK operating overheads by a further £1.4 million per annum by the end of the first quarter of 2012 and the acquisition is then expected to be earnings enhancing.

Business Performance: Technology

Expenditure on research and development in 2011 was £5.4 million (2010: £5.7 million) representing 11 per cent of revenues (2010: 13 per cent). In addition, the business has capitalised development costs of £2.2 million (2010: £2.9 million). Amortisation of development costs of £2.1 million (2010: £2.6 million) is included in the reported research and development expenses in the consolidated group income statement. In cash terms, the Group spent £5.4 million (2010: £6.0 million) on research and development, a reduction of 10 per cent.

In 2011, the majority of our focus was directed toward two core areas. One was expanding the efficiencies gained in 2010 through further team and technology consolidation. Secondly, through improved efficiencies, we accelerated necessary technology advancements toward the Group's expanding focus on communications over IP (Internet Protocol) networks. Vislink's network strategy (V-Net) will continue to keep pace with the market's migration toward video collection over IP networks to insure the continued availability of competitive systems and solutions, which our customers have come to rely on us for.

The modular approach to technology implementation was instrumental to improved efficiencies by way of design reuse and faster product integration thereby providing secondary benefits of improved time to market, on a number of key programs. Additionally, the integration of the Gigawave engineering teams had a positive effect. We have strengthened our embedded FPGA, systems hardware and solutions based software design teams which will help our future developments with regard to recurring revenue applications.

Key product introductions included the introduction of core IP and H.264 (video encoding) solutions into our brand leading microwave and satellite products. The platform advancement to H.264 HD video encoding supports high quality and efficient video and data transmission within our microwave and satellite applications based around the Group's MVL, DVE and MTX product series.

We launched our new Advent Mantis "MSAT" Man Portable Data Terminal, a highly portable tri-band satellite antenna system specifically designed for rapid deployment in hostile environments, at CABSAT in March 2012. The system's fully integrated, portable design requires less than five minutes from arrival to satellite acquisition, making it ideal for rapid deployment field applications. Weighing only 12.5 kilos, the MSAT is specifically designed to be carried by one person and provides functionality for secure military communications; special operations, disaster recovery; emergency services and first-on-scene broadcast opportunities.

Development focus will continue to strengthen our market and technology presence. Core medium and long term focus areas include "IP transport" and managed solutions consistent with our evolving V-Net strategy. The introduction of our HAWK BLOS (beyond line of sight), VMS (Video Media Server) and airStream product initiatives, within our Broadcast and Surveillance markets, is gaining significant traction and interest. All are providing IP based communications and asset management, from the field, utilizing bonded cellular connection technology. The VMS initiative is providing important initial first steps in support of the Group's long term strategy for recurring revenue models.

In 2012 we will continue to manage our brand leading microwave and satellite solution offerings and support technologies to maximize development efficiency. We continue to expand our "IP transport" technology based solutions through both organic efforts and third party technology partnerships.

FINANCIAL REVIEW

The trading performance of the Group has been described fully in the preceding Operating Review. The Group's reported trading performance is summarised as follows:

1 Underlying business is defined as the Group total less the post acquisition trading of Gigawave.

2 Following the Board's decision to retain the business of WTS, the results to 31 December 2010 have been restated to incorporate WTS as part of the continuing business.

3 The effective tax rate is that used to calculate adjusted earnings per share

4 Adjusted EPS is calculated on operating profit before the amortisation and impairment of goodwill and acquired intangibles, and other non-recurring costs after taking account of related tax effects.

Restatement of prior financial statements

On 19 November 2010 the Group announced it was proposing to dispose of the Services business, Western Technical Services ("WTS"). WTS was treated as a discontinued activity in the 2010 financial statements and the net assets had been disclosed as assets held for sale.

During 2011 the Board reconsidered the services strategy and decided that WTS would be fully integrated into the US business. We have therefore restated the prior year financial statements such that WTS is included in the results of the continuing operations and the net assets have been reclassified out of assets held for resale into the appropriate asset and liability categories.

Goodwill impairment

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill and acquired intangibles might be impaired. Given the current uncertain economic environment the Board has undertaken a full impairment review of the intangible assets associated with both the broadcast and surveillance markets. The basis for the review was to assess the strategic plans for the markets and to discount the future expected cash flows using the Group's weighted average cost of capital in accordance with IAS36 "Impairment of Assets". The Board considered the estimated discounted cash flows for the markets from the business plan for the next two years and beyond. The Board also reviewed the performance of the markets in 2011 against the projections used in the impairment review undertaken last year.

Having reviewed all the relevant calculations and the sensitivities the Board concluded that there had been no impairment in the current year (2010: goodwill impairment of £5.4 million).

Non-recurring costs

The Group charged £2.2 million of non-recurring costs to the consolidated income statement. The costs comprise:

·; £1.3 million in respect of rationalisation and redundancy costs in achieving the 22 per cent reduction in operating costs in the underlying business;

·; £0.6 million in respect of the integration of Gigawave into our UK business that is expected to generate annualised cost savings of £1.4 million by the end of the first quarter, 2012;

·; £0.2 million of expenses associated with the acquisition of Gigawave Limited; and

·; £0.1 million of expenses associated with the aborted sale of WTS.

Finance costs

There was a net interest credit of £0.02 million (2010: charge of £0.47 million). The Group operated with a net cash balance throughout the year and earned finance income of £0.05 million. Gigawave was acquired with existing debt and finance leases and the Group incurred finance costs of £0.03 million in respect of these borrowings.

Taxation

There was a net tax credit for the year of £0.5 million (2010: £2.2 million). The current tax charge in the year was nil (2010: credit of £0.7 million). There was a deferred tax credit of £0.5 million (2010: credit of £1.5 million).

The effective tax rate of 14.2 per cent for the year is lower than the standard UK corporation tax rate applicable during the year of 26.5 per cent (2010: 28 per cent) due to the level of losses that the Group made in the year which have not been recognised as tax assets.

At 31 December 2011 tax payable was nil (2010: tax recoverable of £0.8 million). Net tax recovered in the year of £0.9 million comprised UK tax of £0.1m in respect of Gigawave and US tax of £0.8 million.

Discontinued activities

On 29 December 2010 shareholders approved the disposal of the entire issued share capital of HERNIS Scan Systems AS ("HERNIS") to Cooper Industries for £32.5 million. The disposal was completed on 30 December 2010. The results of HERNIS have been treated as a discontinued operation. The profit from discontinued activities in the year was £0.3 million (2010: £23.5 million).

Net assets

The balance sheet at 31 December 2011 is summarised as follows:

The reduction in net assets in the year of £9.3 million comprises the loss for the financial year of £2.8 million and returns to shareholders of £5.2 million through a tender offer and £1.4 million in dividends offset by a foreign exchange gain on translation of overseas operations of £0.1 million.

The effect of the tender offer was to reduce the number of shares in issue by 17.8 per cent from 138.6 million to 113.9 million. As a result the net assets per share have increased by 2 per cent to 41.3 pence.

Intangible assets have increased by £4.5 million during the year as a result of the acquisition of Gigawave Limited. Under the terms of the acquisition agreement, an initial consideration of £1.75 million was paid to the vendors of Gigawave Limited on completion on 2 June 2011. The Group also repaid shareholder loans of £0.4 million on completion. Deferred consideration of £1.0 million is payable on each of the first and second anniversary of completion. The initial consideration was paid in cash, financed out of the Group's existing cash balances. Deferred consideration will also be paid in cash.

Working capital

Our key metrics for managing working capital are days sales outstanding (DSO) for trade receivables and net inventory days. The table below shows that we have improved both these metrics in the current year whilst absorbing Gigawave at the same time. We will continue to focus on reducing inventory days into 2012.

1Trade receivables at the end of the financial year divided by quarter 4 revenue multiplied by the number of days in quarter 4

2Net inventory at the end of the financial year divided by quarter 4 material costs of sales multiplied by the number of days in quarter 4

Cash flows

The Group held cash and cash equivalents of £10.2 million at 31 December 2011 (2010: £22.2 million). The table below summarises the cash flows for the year.

There was a net cash inflow from operating activities in the year of £0.5 million (2010: £3.2 million) after accounting for the cash outflow associated with non-recurring costs (£1.7 million) and normalising the creditor days at Gigawave (£1.5 million).

The cash outflow from investing activities amounted to £5.8 million (2010: £6.8 million) which comprised £2.3 million from the acquisition of Gigawave; £0.9 million of deferred consideration paid in respect of previous acquisitions (2010: £1.6 million) and £2.6 million in respect of capital expenditure and the capitalisation of development costs (2010: £5.2 million).

The Group repaid £0.9 million of borrowings in the year that were acquired with Gigawave. At 31 December 2011 all borrowings had been repaid in full other than £0.04 million associated with finance leases that will be repaid during the first half of 2012.

Returns to shareholders comprised a return of £5.0 million through the Tender Offer (a total outflow of £5.2 million including costs) and a dividend payment of £1.4 million (2010: £1.7 million).

Cash of £4.9 million (2010: £4.9 million) is held in an escrow account. The cash is held in escrow to be able satisfy any potential claims by the buyer of HERNIS Scan Systems AS under the terms of the sale and purchase agreement for breaches of warranties and indemnities. The cash is expected to be released from this account on 30 June 2012.

Returns to shareholders

It is the Group's stated strategy to only recommend a final dividend. The Board is recommending that the dividend be maintained at 1.25 pence per share (2010: 1.25 pence). The payment of the dividend will absorb approximately £1.4 million of cash. Subject to the approval of shareholders, the dividend will be paid on 20 July 2012 to those shareholders on the register at 29 June 2012.

Pensions

The Group operates defined contribution pension schemes, where it contributes a pre-determined amount proportionate to the salaries of the participating employee to the scheme.

Principal risks and uncertainties for the Group

The Group may be affected adversely by global economic conditions

The operating and financial performance of the Group is influenced by the economic conditions of the regions in which it operates, particularly the UK, Continental Europe and the USA. The Group is mitigating its reliance on these regions by expanding its activities in Asia Pacific, the Middle East and Africa. However the current strained global economic conditions and the volatility of international markets could result in a general reduction in business activity and a consequent loss of income for the Group. The global credit market conditions mean financial institutions are applying more stringent lending criteria and the availability of debt is low by historical comparison, which may mean that it will be more costly for the Group to raise funds to take advantage of opportunities, should additional funding be required.

The Group expects to weather the current economic climate through focus on its existing customers as well as developing new relationships and partnerships through expanding its international presence. Improving the operational efficiency of the Group combined with cost reductions already undertaken will help underpin the performance of the Group going forward.

Risks associated with the Group's markets

The markets in which the Group operates are mature and highly competitive with respect to price, geographic distinction, functionality, brand recognition and the effectiveness of sales and marketing.

Due to price pressure, the Group may experience fluctuations in future operating results. If the Group is unable to offset any reductions in selling prices and margins by increases in volumes and/or by decreases in operating expenses, turnover and profitability may be affected negatively. Competition could be intensified due to companies entering certain markets with new products or favourable cost structures. In such events Group sales, margins and/or market shares may decrease.

Group management and the business units are aware of the competitive risks in its markets and regularly review competitor activity in order to create strategies to protect the Group's position as far as possible.

Reputational risks for operational incidents

Many of the Group's products are for mission critical services, such ensuring live news is available in real time or that mission critical video surveillance is uninterrupted. There is the risk that product failure will cause loss of services to Vislink customers, bringing damage to the Group's reputation. Customer service and support is a key part of the Group's offering to customers to mitigate such damage.

Operations overseas

The Group conducts its business in multiple jurisdictions and, as a result, assumes the accompanying risks which may include government regulations and administrative policies which could change quickly. Governments could expropriate assets; burdensome taxes or tariffs could be imposed. Political changes in the business environment in which the Group operates and economic downturns, political instability and civil disturbances could disrupt the Group's business activities. Where appropriate the Group will take out insurance to cover political risks. Management monitor the exposure that the Group has to higher risk countries.

The Group's business may be affected by the default of customers in respect of monies owed to the Group

As a consequence of its normal operations, the Group often has significant amounts owed to it by its customers. In the current market environment, the Group's operating and financial performance may be impacted by increased exposure to the default of customers, which may reduce the Group's cash flows.

The Group policy is to limit its exposure by setting credit limits for each customer, where possible by reference to published credit ratings, to manage its exposure. In addition on larger contracts the Group seeks deposits and advance payments to maintain a positive cash flow and to cover its costs.

Senior management and senior personnel

The Group is dependent on members of its senior management team and skilled personnel. Its future success will depend in part on its ability to attract and retain highly skilled management and personnel. If the Group does not succeed in attracting and retaining skilled personnel, it may not be able to grow its business as anticipated. Further, the departure of certain senior employees from the Group could, in the short term, have a material adverse effect on the Group's business. The Board gives regular consideration to succession planning.

Foreign exchange

The Group's exposure to market risk, liquidity risk, credit risk and cash flow interest rate risk remains largely unchanged from the position at 31 December 2010.

The Group's principal risks and uncertainties continue to be the impact of foreign exchange rates on margins for non-domestic sales in each of our businesses. The Group mitigates this risk as far as possible through hedging expected foreign exchange receipts when appropriate.

The Group is exposed to the translational risk of fluctuations in the value of sterling when translating overseas results and assets back into sterling. The exchange risk to the Group in terms of its reported results lies in the translation of the results of our trading entities in the United States. The Group accounting policy is to translate the profits and losses of overseas operations using the average exchange rate for the financial year and the net assets and liabilities of overseas subsidiaries at the year end exchange rate. It continues to be Group policy not to hedge the foreign currency exposures on the translation of overseas profits or losses and net assets or liabilities as they are considered to be accounting rather than cash exposures.

In 2011 the net assets of the Group increased by £0.1 million on the translation of foreign currency net investments (2010: increased by £1.1 million) as a result of the strengthening of the US dollar against sterling.

The principal exchange rates used by the Group in translating overseas profits and net assets into sterling are set out in the table below.

If the results for the year to 31 December 2010 had been translated at the 2011 average rate then the translation impact would be to reduce prior year revenue by £0.7 million and increase the loss before tax by £0.5 million.

Risk management

The Board regularly reviews the full range of business risks facing the Group. The approach adopted is to identify, evaluate and manage the likely impact of risk on the Group's business objectives. Where the risks are unavoidable they are managed through business controls and where appropriate through insurance and treasury activities.

The Group has a programme of regular risk assessment, which incorporates internal control reviews of both a financial and non-financial nature. A process of continuous review has been in place throughout the year at an operating company level to consider the risk environment and the effectiveness of controls. The results of reviews, initiatives and progress on implementing control improvements are regularly reported to the Board.

John Hawkins, Executive Chairman

James Trumper, Group Finance Director

27 March 2012

CONSOLIDATED GROUP INCOME STATEMENT

for the year ended 31 December 2011

Diluted (loss)/earnings per share

There is no difference between basic and diluted earnings per share (note 9).

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2011

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

for the year ended 31 December 2011

CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION

as at 31 December 2011

CONSOLIDATED GROUP STATEMENT OF CASH FLOWS

for the year ended 31 December 2011

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2011

1. GENERAL INFORMATION

Vislink plc ("the Company") and its subsidiaries (together "the Group") is a global technology business specialising in the collection and delivery of high quality video and associated data from the field to the point of usage. Vislink provides solutions to the broadcast market for the collection of live news, sport and entertainment events and to the surveillance market including law enforcement and public safety customers. With offices in the UK, USA, Australia, China, UAE and Singapore the Group employs over 250 people worldwide.

The Company is a public limited company that is listed on the London Stock Exchange. The Company is registered and domiciled in the UK and its registered office is Marlborough House, Charnham Lane, Hungerford, Berkshire, RG17 0EY. The registered number of the Company is 4082188.

This preliminary announcement was approved for issue on 27 March 2012.

2. BASIS OF PREPARATION

These results have been prepared in accordance with all International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), IFRIC interpretations and with those parts of the Companies Act, 2006 applicable to companies reporting under IFRS.

The financial information set out herein does not constitute the Company's statutory financial statements for the year ended 31 December 2011 but is derived from those financial statements and the accompanying directors' report. The financial information has been prepared in accordance with our accounting policies published in our financial statements for the year ended 31 December 2010. Statutory accounts for the year to 31 December 2011 will be delivered to the Registrar of Companies in due course.

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2010, as described in those annual financial statements.

The Board has reconsidered the services strategy and decided that WTS would be fully integrated into the US business. WTS was treated as a discontinued activity in the 2010 annual report; the prior year numbers have been restated to include the financial results of WTS in continuing activities.

Exceptional items are disclosed and described separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

Repurchase of own shares. Where the Group purchases the parent company's equity share capital, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the company's equity holders until the shares are cancelled. When the shares are cancelled, share capital is reduced by the nominal value of the cancelled shares and a capital redemption reserve is created at an equivalent value.

Application of new or amended EU endorsed accounting standards

A number of amendments to published standards and interpretations are effective for the Group for the year ended 31 December 2011. The Group has reviewed the effect of these amendments and interpretations, and has concluded that they have no material impact on these consolidated financial statements.

New standards and interpretations not yet adopted

There are a number of new standards, amendments to standards and interpretations that are not yet effective for the year ended 31 December 2011, and have not been adopted early in preparing these consolidated financial statements. None of these are anticipated to have any material impact on these consolidated financial statements

3. SEGMENTAL REPORTING

The Group's internal organisational and management structure and its system of internal financial reporting to the Board of Directors are based on the geographical location of its businesses. These comprise two regions, the UK, and the United States of America (US). Each business location has its own managing director who sits on the Executive Management Board under the chairmanship of the Executive Chairman to oversee the running of the Group. The chief operating decision-maker has been identified as the Executive Management Board. The Executive Management Board reviews the Group's internal financial reporting in order to assess performance and allocate resources. The same information is provided to the Board of Directors of Vislink plc. Management has therefore determined that the operating segments for the Group will be based on these businesses.

The table below shows the analysis of Group external revenue and operating profit from continuing operations by business segment.

Geographic external revenue analysis

The sales analysis in the table below is based on the geographical location of the customer for each market that the Group serves. There are no individual customers that represent more than 10 per cent of Group revenues.

Net assets

The table below summarises the net assets of the Group by their geographic location. Balance sheet reporting is disclosed by the geographic location of the assets and liabilities of the Group as this is consistent with the presentation of internal information provided to the Executive Management Board and the Board of Directors.

4. OPERATING PROFIT

The following items have been included in arriving at the operating (loss) for the continuing business:

The Group has incurred rationalisation and redundancy costs of £1,273,000 in the year (2010: £399,000). In addtion a further £585,000 of cost has been incurred as a result of the decision to integrate the business of Gigawave into the UK operations of the Group.

Acquisition and disposal costs comprise the costs associated with the acquisition of Gigawave (£233,000) and disposal costs of £98,000 associated with the aborted sale of WTS (see note 7).

5. FINANCE COSTS - NET

Investment income is derived from cash held on deposit.

6. INCOME TAX EXPENSE

A number of changes to the UK Corporation tax system were announced in the Finance Act 2010 and the March 2011 Budget Statement. As a result legislation has been substantivenly enacted to reduce the main rate of corporation tax from 28 per cent to 26 per cent from 1 April 2011. Further reductions are proposed to reduce the rate by 1 per cent per annum to 23 per cent by 1 April 2014. These further changes had not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements.

Accordingly, the Group's UK losses for this accounting periood are taxed at an effective rate of 26.5 per cent (2010: 28.0 per cent). Foreign corporation taxes for other jurisdictions are calculated at the rates prevailing in the respective jurisdictions.

Deferred tax has been provided for at the rate of 25.0 per cent (2010: 27.0 per cent). There was not a material impact on the deferred tax charge as a result of the change in deferred tax rates.

There is no tax impact associated with items that have been taken directly to equity. There is no tax impact for the Group associated with the dividend proposed (note 8).

7. DISCONTINUED OPERATIONS

On 29 December 2010 Shareholders approved the disposal of the entire issued share capital of HERNIS Scan Systems AS ("HERNIS") to Cooper Industries Inc for £32.5 million. The disposal was completed on 30 December 2010 and subsequently HERNIS has been treated as a discontinued business.

On 19 November 2010 the Group announced it was proposing to dispose of the Services business, Western Technical Services ("WTS"). Subsequently the Board has reconsidered the services strategy and decided that WTS will be fully integrated into the US business. WTS had been treated as a discontinued activity in the 2010 financial statements; the 31 December 2010 numbers have therefore been restated to include WTS in continuing activities.

The analysis of the results of the discontinued business is as follows:

8. DIVIDENDS

The directors are proposing a final dividend in respect of the financial year ending 31 December 2011 of 1.25 pence per share, which will absorb an estimated £1.4 million of shareholders' funds. It will be paid on 20 July 2012 to shareholders who are on the register of members on 29 June 2012.

9. EARNINGS PER ORDINARY SHARE

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the employee share trust which are treated as cancelled. Earnings per share is calculated by reference to a weighted average of 119,846,000 ordinary shares in issue during the year (31 December 2010: 137,754,000).

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the company's ordinary shares during the year. At 31 December 2011 there were 35,000 dilutive share options (30 June and 31 December 2010: nil) and therefore there is no material difference between basic earnings per share and diluted earnings per share.

Adjusted earnings

The directors believe that the adjusted operating profit, adjusted profit before tax, adjusted earnings and adjusted earnings per share provide additional useful information on underlying trends to shareholders. These measures are used by management for internal performance analysis and incentive compensation arrangements. The term "adjusted" is not a defined term used under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are made in respect of the amortisation of acquired intangibles, impairment of goodwill and non-recurring costs and their related tax effects.

The reconciliation between reported and adjusted earnings and basic earnings per share for the continuing business is shown below:

10. CASH FLOW FROM OPERATING ACTIVTIES

Net cash flow from operating activities comprises:

11. CALLED UP SHARE CAPITAL, SHARE PREMIUM AND CAPITAL REDEMPTION RESERVE

Following consultation with major shareholders, the directors proposed to return up to £5.0 million of the proceeds from the sale of HERNIS to shareholders by way of an on-market tender offer. A circular was sent to shareholders on 23 March 2011 explaining the proposal, which was approved at a General Meeting on 8 April 2011. The tender offer was oversubscribed. Therefore the maximum number of shares available under the terms of the tender offer (after the scaling down of tenders), was 24,691,358 shares at 20.25 pence per tendered share, for a total consideration of £5.0 million. The tender offer and repurchase was completed on 13 April 2011 and the shares purchased under the tender offer were cancelled. Consequently, the issued share capital of the Company is now 113,902,230 shares all with equal voting rights.

Costs associated with the tender offer were £0.2m; therefore the total cash outflow associated with the tender offer was £5.2 million.

There were no share options exercised in the year to 31 December 2011 under any of the existing employee share option schemes (2010: nil).

12. BUSINESS COMBINATIONS

On 2 June 2011 the Group acquired the entire issued share capital of Gigawave Limited ("Gigawave") for cash consideration of £3.75 million. Based in Colchester, Essex, Gigawave was privately owned by a number of individual shareholders and employed 87 people. Gigawave is a leading designer, manufacturer and supplier of wireless camera, microwave and antenna products for the broadcast market. Gigawave has a particular strength in "on-board" applications for motorsport events around the world. Gigawave will complement and broaden the Group's capabilities in terms of engineering, product portfolio and geographic reach and will therefore strengthen the Group's position in its broadcast market.

Under the terms of the acquisition agreement, an initial consideration of £1.75 million was paid on completion on 2 June 2011. The Group also repaid shareholder loans of £0.4 million on completion. Deferred consideration of £1.0 million is payable on each of the first and second anniversary of completion. The initial consideration was paid in cash. Deferred consideration will also be paid in cash.

The following table summarises the consideration paid for Gigawave and the valuation of the amounts of the assets acquired and liabilities assumed as recognised at the acquisition date.

Trade and other receivables are net of a provision for doubtful debts of £0.3 million. Deferred tax of £0.6 million has been provided in respect of the fair value of acquired identifiable intangible assets of £2.5 million.

Gigawave has been integrated into the Group's UK operations so as to realise the benefits expected from improved global distribution of all the Vislink brands and operational efficiencies. The goodwill of £3.4 million arises from these factors. None of the goodwill is expected to be deductable for tax purposes.

Acquisition-related costs of £0.2 million are included in other expenses in the income statement and are considered to be non-recurring (note 4). Thus the total initial cash out flow associated with the acquisition was £2.4 million

Gigawave contributed £5.6 million to Group revenue and a loss of £0.9 million to Group operating loss in the period after charging non-recurring integration costs (note 4). If the acquisition of Gigawave had been completed on the first day of the financial year, Group revenues for the year would have increased by £4.3 million and Group profit attributable to equity holders of the parent would have remained unchanged.

13. NET FUNDS

The movements in cash and cash equivalents and borrowings in the year are as follows:

Cash of £4.9 million (31 December 2010: £4.9 million) is held in an escrow account. The cash is held in escrow to be able to satisfy any potential claims by the buyer of HERNIS Scan Systems AS under the terms of the sale and purchase agreement for breaches of warranties and indemnities. The cash is expected to be released from this account on 30 June 2012.

Ends.